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Paving the Way: How Digital Is Transforming Logistics

Blog — July 22, 2017

Logistics is a booming business. Experts estimate that the market will expand rapidly -- from $8.1 trillion in 2015, to $15.5 trillion by 2023.

This is helped along by the fact that logistics isn't an independent market: it interfaces with nearly ever other market, such as retail. As these markets are disrupted by digital technology (for example, e-commerce), logistics grows closer to dramatic digital disruption. As more startups enter into the logistics field, it's only a matter of time before one of them stumbles upon one or more developments that will completely revolutionize the industry.

Moving Beyond Traditional Models

It used to be that logistics consisted primarily of traditional agents like truck and plane manufacturers, freight brokers and supply chain managers. Now, however, it's a field that draws far more digital-first startups, as well as established tech companies like Amazon.

These companies are bringing cutting-edge technology to the field. For instance, cloud-based operations allow employees access to information, no matter where they are, and are increasing transparency in the customer experience. Data analytics allows careful examination of where shipping companies do most of their work, so they can intelligently deploy more resources into the field. Robotics and autonomous vehicles like drones and self-driving cars allow companies to deliver shipments quickly, efficiently and much more cost-effectively. And shipment-and fleet-management software has streamlined operations: cutting costs, increasing fuel efficiency and improving delivery times.

Disruption on Both Sides

Logistics isn't just on the business side. While businesses are streamlining their operations and moving into the digital world, customers' expectations are adapting, too.

For instance, Amazon has dramatically improved its performance over traditional shipping times, thanks to its same-day and standard two-day delivery times. Customers expect shipping excellence from Amazon. And thanks to the company’s dominance over the online retail market, customers now expect that same excellence from other retailers. Walmart’s recent acquisition of Jet.com is proof of that pressure. This model has successfully shifted the market so other companies must innovate and transform their logistics in order to compete.

The Last Mile

Logistics companies sometimes say the last mile is the most costly one. Whereas a company can bring a large number of shipments to one central point, the final delivery -- to a business, a home or other establishment -- involves greater specificity, and therefore greater time and expense.

As companies attempt to resolve the "last mile" problem, they've fragmented. New startups are moving in on this territory and seeking to resolve it in novel ways, exploring technologies like crowdsharing and platform solutions. The end result is a diverse, fast-paced landscape of digital startups, each moving to out-compete each other and approach these challenges in exciting new ways.

Issues of Scale

Logistics has traditionally been a hard business to break into because of the economy of scale. (This has traditionally blocked digital innovation.) To deliver shipments to a broad area, companies must have access to a broad array of resources. On the flip side, companies that can only deliver products to a small area are bound to have trouble growing.

This has created an ever-shifting series of alliances and acquisitions, as startups move to grow, develop and work with and against each other. Depending on what companies develop which assets -- and which companies recognize those assets and move to consolidate -- this can result in a few large companies dominating the market, or a large number of fragmented startups forging alliances and working together to compete.

The logistics market is shifting quickly, thanks to emerging startups and digital companies entering the market. They're eager to work with existing enterprises to solve real-world challenges like the "last mile" problem through technology innovation. As competition heats up, we can expect to see the field of logistics even more dramatically impacted by digital transformation.

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